Cut the Defense Budget

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Barney Frank and three other legislators have banded together to try to convince Obama to cut the Pentagon's budget by $100 billion. Of Obama's decision to exempt the Pentagon from the discretionary spending freeze, Frank, the statesman and peace activist, says, “I think he has made a very grave error.”

I guess Barney thinks that the billions being spent on the F-35 should not be considered as discretionary spending. After all, this will keep GE happy and, hopefully, keep jobs in the state. Does it matter that the Pentagon does not want this plane?

GDP Is Not The Whole Story

A happy and successful life is measured not only by money. That's the thesis of the American Human Development Project; it does make a great degree of sense. Two years ago the project released a study comparing the U.S. with other countries as measured by their level of human development, which in the project's view is a function of one's health, education and income. Now they've released a study comparing the development of various racial and ethnic groups by state.

Would you be surprised to learn that Asian-Americans score highest on the overall index as well as the three sub-indices - health, education and income? The group with the lowest overall index is Native-Americans, who are also lowest in income. African-Americans have the lowest life expectancy and Latinos the lowest education index.

Results do vary by state. An African-American in New Jersey is far better off than one in Louisiana; she'll live longer, be better educated and make more money. New Jersey seems to be a good state for minorities. Latinos and Asian-Americans are much better off there than any other state. If you're a Native-American, I hope you live in California rather than South Dakota. The worst place a white person can live is West Virginia, the best is Washington, D.C.

Speak Loudly But Carry a Small Stick

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He may have won the health care war, but Obama has not really done much more. This is particularly true in foreign affairs. Granted Bush put us in a terrible spot, but Obama is not succeeding at getting us out of that spot by warning countries to shape up and doing nothing about it except to back off somewhat sheepishly. Dilip Hiro thinks that we are already on the declining slope of world power. His article in TomDispatch discusses five rather important examples of Obama's flip-flopping: Honduras, China, Brazil, Israel and Afghanistan. Read it!

The Flotilla's Aid Will Be Delivered to the Gaza Strip

That's the last line of Der Speigel's report on the attack by Israel commandos of a flotilla of ships bringing 10,000 tons of humanitarian supplies to the people of the Gaza Strip; included among the supplies were wheelchairs, which apparently can be used by Hamas to attack Israel. It's uncertain how many have been killed; current estimates range between 10 and 19 of the 600 or so who were on the six ships.

Included among the desperadoes in the ships were some really dangerous people - two members of the German Parliament, a Nobel Peace Prize laureate, a survivor of the Holocaust and Henning Mankell, the author of the Walander novels.

The attack, which occurred in international waters, has drawn the wrath of many countries. We, the U.S., are "currently working to understand the circumstances surrounding this tragedy.”

Another 'Hero' Debunked

Mark Kirk, Congressman from Illinois, is running for Obama's old seat. He has been touting his military background. He did receive several awards but he was not the Navy's Intelligence Officer of the Year in 2000 as he has claimed more than once. His unit was given the award, not him.

That makes two Senate candidates - Blumenthal of Connecticut being the other - who apparently feel that the times call for more militaristic or patriotic leaders.

Strike 4

How many strikes will BP get or need to close the well? The "top kill" method was the fourth attempt. The question still remains why BP drilled this well in the first place. The NY Times claims that last June BP was worried that the casing might collapse under high pressure, which violated the company's safety policies. But, policies be damned. There seemed to be a lot of oil to be drilled.

In March BP told MMS that they had problems of "well control"; but they pressed on. The quality of the casing was questioned again in April, when the project was over budget and behind schedule. There were problems with the blowout preventer when it was tested for pressure as high as 10,000-pounds-per-square-inch. So, they lowered the maximum to 6,500 pounds per square inch.

From what I've read, it sounds as though the pressure today is just too powerful to be overcome by the methods used thus far. One supposed expert has proposed putting a nuclear bomb down the well to shut it off. Don't laugh. Pravda claims that Russia has done this five times.

Truth in Advertising

The blog "Information Processing" has unearthed this 1999 ad.

Not exactly master criminals

Bonnie Jean Hoxie worked in the corporate communications department of the Walt Disney Co. She wanted to buy expensive shoes and clothes, but neither she nor her boyfriend, Yonni Sebbag, could afford them. They had read somewhere that most investors would like to be the first to know what the earnings of company x will be next quarter. Well, Bonnie felt confident that she would know Disney's earnings for the next quarter before they were released to the public. Hence, there was an opportunity to make some money to satisfy her clothing needs.

So, Bonnie and Yonni did what any master criminal would not do. On March 5, they sent letters to dozens of investment companies announcing they had "access to Disney's quarterly earnings report before its release on 5/30/10" and they were willing "to share this information for a fee." Unbeknown to Bonnie and Yonni, many hedge funds reported receiving the letter to the SEC. So began what will be a journey to jail for Bonnie and Yonni. The FBI stepped in, gave Yonni $15,000 for the information and then arrested the both of them.

Will anyone from BP be indicted?

Yes, The Wall Street Journal has deteriorated since Murdoch took over, but they have really been on the ball with regards to the BP oil spill. They have been careful in their wording - e.g., Thursday's headline: Unusual Decisions Set Stage for BP Disaster. You or I might have described the decisions as being based on greed, but The Journal does not want to be sued for libel.

At its core, the problem seems to be the result of BP's efforts to overcome the situation whereby they were over budget and behind schedule on the project. Thus, they took a number of shortcuts to get back on track. Many of these shortcuts involved procedures for making sure that gas is not leaking into the well. For example, they spent 30 minutes on a procedure that normally takes 6 - 12 hours; they did not test the cement. And, BP did not listen to representatives of Transocean relative to removing the fluid that was expected to keep gas out.

The problems continued after the explosion. But now they are becoming only questions of ethics. Ed Markey, of the House Natural Resource Committee, said that BP knew that the well was releasing 14,000 gallons a day but they were telling us it was only 1,000 gallons. And we're all well aware of the blame shifting that is taking place.

You wonder if this well was cursed from the start. It was called Macondo, after the cursed town in Garcia Marquez's "One Hundred Years of Solitude".

Make It Hard to Understand

The "It" is the supplemental budget that is being passed by our leaders. Look at it and tell me how much you understand. The people who do understand this budget tell us that in the Senate version almost $60 billion is being allocated to defense, which includes our wars in Iraq and Afghanistan as well as funds for Haiti and FEMA. The House version is looking to spend $84 billion. Would there be a difference if the Bush administration were still in power? I doubt it.

Iraq has to be a hell on earth

"We continue to clean the streets by ourselves with or without a government; the electricity is still off with or without a government; water is still down with or without a government and, finally, security is bad with or without a government," Hatif, a fisherman in Baghdad, said. "So why should the people care about a government?"

It's been almost three months since the election but Iraq has yet to form a new government and I guess the old government has stopped governing - at least as far as the average Iraqi is concerned. It appears just about impossible to get government documents such as licenses or to register for pensions.

Part of the problem is due to the fact that there are 100,000 government jobs that are not yet filled because filling them requires the okay of the new government.

A church leader who has tried to get his church licensed says, "They didn't come to serve the citizens, to save us. We defied everything, even terrorism, to go and vote for these people, and I've come to believe my vote was worthless."

And still the violence, the deaths, the terror continues.

It would be hard to describe a worse place to be than Iraq.

A Bigger Surge Needed?

Things are not going well in Marjah. This was the place where we were going to show the Taliban that their day was over. There are not enough troops to make the case. The Taliban is cutting off heads, which may make the natives a little nervous. Kabul has not sent nearly enough qualified police or government workers.

McChrystal acknowledges that there are problems, "What we have done, in my view, we have given the insurgency a chance to be a little bit credible. We said: 'We're taking it back.' We came in to take it back. And we haven't been completely convincing." A tribal elder agrees, "By day there is government. By night it's the Taliban."

Another Vietnam? Another Iraq? It sure sounds that way.

"McGB all wrong"

That's what McGeorge Bundy, National Security Adviser to Kennedy and Johnson, noted on a memo to Johnson he had written 29 years earlier. The memo asserted that South Vietnam was not lost and was not going to be lost. This appears in a fascinating review in the NY Review by William Pfaff of "Lessons in Disaster: McGeorge Bundy and the Path to War in Vietnam."

Pfaff likens the War on Terror with the Cold War. In both cases we believe that our very existence is in doubt unless we take decisive action.

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The book reveals that Kennedy invited General Douglas MacArthur to the White House to get his views on the Vietnam situation. MacArthur is quoted as saying "it would be foolish to fight on the Asiatic continent", "the future..should be determined at the diplomatic table" and "even if we poured a million infantry soldiers into that continent, we would still find ourselves outnumbered on every side."

Pfaff believes that there are parallels between today's wars and Vietnam. The belief that we are in mortal danger is one such parallel. However, Kennedy resisted that pressure, it does not appear that Obama has. The domino theory is advanced as a primary reason to resist today and 50 years ago; the theory has not been exactly on target - vide Vietnam today. The military wants to prove that Vietnam was not a waste; we can win a guerilla war. Some still believe that Congress and the American people - not the military - lost Vietnam.

Pfaff closes by listing the table of contents of the book he is reviewing:

1. Counselors Advise but Presidents Decide.
2. Never Trust the Bureaucracy to Get It Right.
3. Politics is the Enemy of Strategy.
4. Conviction Without Rigor Is a Strategy for Disaster.
5. Never Deploy Military Means in Pursuit of Indeterminate Ends.
6. Intervention Is a Presidential Choice, Not an Inevitability.

Read items 5 and 6 one more time.

Mystery Solved

Ah, the wonders of modern technology! Now I know what that orange stuff is. It's "fusiform gall rust", as anyone should know, assuming you know what "fusiform" means and how the terms "gall" and "rust" relate to 'stuff on a pine tree'. Anyway, here's what Mississippi State says about the subject.

What's That Orange Stuff On My Pine Tree?

The appearance of masses of orange growth on swollen areas along branches and trunks of loblolly and slash pines at this time of year always raises concern among homeowners. "What's happening to my pine tree, and is it going to die?" is a common question received by County Extension Offices when this disease first shows up.

Technically this condition is referred to as fusiform gall rust. Loblolly and slash pines are most susceptible to this fungus disease, while longleaf and shortleaf pines are resistant.

Each year in late March and early April, the surface of galls is covered with an orange growth (literally millions of fungus spores), which is a stage in the life cycle of the fusiform gall rust fungus.

Back to the question raised by homeowners about whether fusiform gall rust will kill affected pine trees. If the galled area appears on the main trunk of the tree, the answer is "yes." Tree death may not occur for a period of several years, but eventually the fungus destroys so much woody tissue of the trunk that death becomes inevitable. There are no fungicides or other types of treatment which may be used to cure gall rust infected pine trees.

Attempting to cut-out galled areas by pruning doesn't work, since by the time the gall is apparent, the fungus has extensively invaded trunk tissues, so that pruning only removes a small part of the infection.

In most cases, however, a fusiform gall rust infected tree is blown over during windstorms before the disease has a chance to cause death, since the wood formed within galled areas is highly subject to breakage. Insects frequently invade galled areas and cause further deterioration and increased susceptibility to wind breakage.

It's best to consider removal of trunk-infected trees, particularly if trees are located next to dwellings, parking areas, or any spot where a fallen tree would create serious problems.

Removal of galls is an option provided the infected area is on a branch and the gall is one to two feet away from the main trunk. There's a good chance that the rust fungus hasn't grown back into the main trunk in such cases. Thus, removal of galled branches may allow you to salvage the tree. Left unpruned, the fungus will eventually invade the trunk area where pruning recourse is not possible.

For additional information on diseases and other pests of trees and landscape plants, check with us at your county Extension office.

Infobytes newsletter was written by the late Dr. Frank Killebrew, Extension Specialist.

It really is nice to be able to send a query out at 8:30 and have an answer back before the sun sets.

It's Not Carrots

Today the orange 'pod' below appeared on almost all the pine trees in my yard. It has never appeared before in the 20+ years I've been living here. Does anyone know what it is? It seems that the birds like them as several pods were on the ground.

D.O.A.

It's almost June, time for PBS to run its Masterpiece Mystery series. The network really should drop the "Masterpiece" from the title as this series is far from that. Last year they introduced Wallander, a series that will be repeated this year although the smell was overpowering. Two years ago they introduced Lewis, an offshoot of the Inpector Morse series. While the Morse series was topnotch, Lewis was not even of second banana status it was so bad.

This year PBS has issued a new series of "Foyle's War" which, until now, has been of the quality one had grown to respect and expect. The 2010 version of the program, however, falls into the same low quality category as Wallander and Lewis. The plots are far fetched and filled with irrelevancies to fill out the time. Michael Kitchen, who plays Foyle, seemed as bored with the show as I was.

Has a new generation taken over the series? Am I too old to appreciate the 21st century version of a 20th century classic?

Saturday in Iraq

The photo below is of a victim of a bomb attack 245 miles north of Baghdad. Eight people were killed and 120 wounded in an attack of a soccer field in Tal Afar. Things are under control.

Tomorrow, tomorrow, tomorrow

It's always tomorrow when things will be getting better in Afghanistan. The magic date when progress will be achieved has moved from August to November. Allied with the date change is a word change; we are now executing a program called "Cooperation for Kandahar" (note that it's cooperation "for", not cooperation "with") rather than a military operation to bring progress there.

A good part of the problem is our inability to do anything with President Karzai's brother, Ahmed Wali. He has been running the province for five years and things have gotten worse, rather than better. Is this record a reason for the inhabitants to support his leading a "better" government?

We settled Helmand province earlier this year. Did we really succeed?

The May COP Report

The May report from the Congressional Oversight Panel has not received much publicity, although it is a warning that loans to small businesses, a major economic engine, are not bouncing back. Between 2008 and 2009 overall lending by large banks dropped by 4.1%; lending to small businesses by the same institutions dropped by 9%. The panel is not sure whether the decline is due to supply or demand.

A Heck of a Business Model

How's this for a business model for a magazine: no subscribers, no ads, use freelancers only, limited distribution? How can such a magazine make money? Sell your soul. That's what Consumers Digest does, at least when it comes to cars. The Wall Street Journal has the answer to that question in more practical terms: Sell your ratings! And, if they can make money using this business model with cars, why couldn't they use the same model with every item they "rate"?

The Digest allows car manufacturers, and one has to assume other companies, to use the Digest's evaluation in ads for a small fee. With GM the fee is $35,000 for the first car and $25,000 for additional cars. It's not chump change when you realize that GM is touting 15 cars as being best buys; that costs GM $385,000, or what used to be chump change to them. As you would expect, the editor of the Digest asserts that the fees do not influence the ratings, but, if you don't pay and are picked as a best buy, only your name is listed on the Digest web site, while those who pay a fee get a full spread.

The Digest approach is quite different from that of Consumer Reports, which does not allow its recommendations to be used in ads. You may recall that Consumer reports went so far as to announce that a Lexus model was so dangerous that it should not be sold. Another difference in approach is the way the magazines choose the models to evaluate. Consumer Digest gets its models direct from the manufacturer, Consumer Reports buys them from a dealer without indicating that the magazine is the buyer.

Even more important for profitability than selling one's soul is the choice of the title of the magazine. Who would not trust "Consumers Digest'?

It Has Been a Lulu

A few weeks ago I wrote about my experiences trying to publish a book using lulu.com. Well, I finally finished it but suspected that lulu.com hadn't finished with me. I was correct.

First I ordered some paperback copies and, as I reported, I had to pay priority mail rates because lulu could not change my mailing address. This priority mail shipment took ten days to arrive. I suspect that regular mail would have been faster, but then how could lulu charge me a higher rate for postage?

A few days after my initial order, I ordered some hard copies of the book. Of course, I went through the whole priority mail scam once more. At least they are consistent in that this shipment also took ten days to arrive. However, it did not arrive at West Tisbury, where I live. It was shipped to Vineyard Haven, where I have never lived. Fortunately, the person who received the package was kind enough to call me and I picked it up. When I took out the books, I looked at the Shipment Summary form that was packed in the box. I'll give you one guess as to what address was listed on the form.

Is there anything lulu.com does right?

Movement towards U.S.?

In a week when Russia announced its intent to sell fighter jets to Syria, the Wall Street Journal reported on a shift in Russia's foreign policy with a move towards better relations with the U.S. and Europe. The article is based on a confidential report by the Foreign Minister. Apparently, Medvedev believes that Russia's economy can enter the 21st century only by allying with the West.

It's likely that the recent agreement re nuclear weapons was triggered by this shift. Also, last Sunday when Russia celebrated the end of WWII, U.S. and European soldiers marched in the parade for the first time.

Despite these actions, there is still a long way to go.

Cost = $1 trillion and lots of lives

That's what the Associated Press has computed as the cost of our drug war over the past 40 years. What has been the result of that investment? Here's what AP says in its conclusion to what appears to be a fairly in-depth study of the issue:

_ $20 billion to fight the drug gangs in their home countries. In Colombia, for example, the United States spent more than $6 billion, while coca cultivation increased and trafficking moved to Mexico — and the violence along with it.

_ $33 billion in marketing "Just Say No"-style messages to America's youth and other prevention programs. High school students report the same rates of illegal drug use as they did in 1970, and the Centers for Disease Control and Prevention says drug overdoses have "risen steadily" since the early 1970s to more than 20,000 last year.

_ $49 billion for law enforcement along America's borders to cut off the flow of illegal drugs. This year, 25 million Americans will snort, swallow, inject and smoke illicit drugs, about 10 million more than in 1970, with the bulk of those drugs imported from Mexico.

_ $121 billion to arrest more than 37 million nonviolent drug offenders, about 10 million of them for possession of marijuana. Studies show that jail time tends to increase drug abuse.

_ $450 billion to lock those people up in federal prisons alone. Last year, half of all federal prisoners in the U.S. were serving sentences for drug offenses.

At the same time, drug abuse is costing the nation in other ways. The Justice Department estimates the consequences of drug abuse — "an overburdened justice system, a strained health care system, lost productivity, and environmental destruction" — cost the United States $215 billion a year.

Harvard University economist Jeffrey Miron says the only sure thing taxpayers get for more spending on police and soldiers is more homicides.

Yet despite what it says about the drug war, the administration continues to spend twice as much on the war as it spends on prevention.

Iraq is still a hellhole

On Monday McClatchy reported that at least 100 Iraqis were killed and 300 wounded in separate attacks in various parts of the country. It's time to declare victory and leave.

Freddie Mac Is Not Doing Well

In fact, it's doing horribly, at least according to Gretchen Morgenson. And she backs up her assertions quite well. Delinquencies are way up. The number of foreclosed properties Freddie holds has almost doubled over the past year. Q1 loss is $6.7 billion. They want another $10.6 billion from us.

Freddie says the basic problem is it had to move some things onto its balance sheet, the things being its guarantees on weak mortgages. This amounted to over $1 trillion. Not chump change.

Morgenson and others agree that moving things to the balance sheet had a major impact on profitability, but they question whether Freddie is paying too much for some mortgages. They go further and speculate that the administration is using Freddie as a back door means of helping the banks. The silence about Freddie's numbers certainly does give one pause.

Trying to Make the Sale

How many sales can hospitals in Ohio, Nebraska, California, Texas and several other states make by advertising in the Sunday NY Times? The cost of the full-page ads that they use has to be in the $50,000 range. Is this a wise use of the supposedly limited funds available for health care?

PBGC Has "Material Weaknesses"

That's what the auditors said about Pension Benefit Guaranty Corporation which has made my news a couple of times this year because they have not been doing their job very well. The actual comment from the IG was “PBGC did not have effective internal control over financial reporting (including safeguarding assets) and compliance with laws and regulations and its operations.”

PBGC has had problems with its contractors. One stole the social security numbers of over 1,000 people on PBGC files - and then lost the computer disk. Others have had problems just doing the job we're paying them for.

It appears as though PBGC has fundamental management problems. Will it be able to meet its obligations?

Taking His Time

It has taken quite a bit of time for Obama to fully staff the Treasury; I don't know whether it is now fully staffed. I doubt it. I also think that there are other departments that are short of staff. The Center for Public Integrity has found that the administration is still short of agency watchdogs, which are usually given the title of Inspector General. There are 73 jobs of this type in the federal government, 15 are still vacant after more than 15 months in office. Among the agencies without an IG are State, CIA, EPA and Labor. And the GAO, which looks at all the federal agencies, has had an acting head for two years.

What is the problem? Are they looking for saints?

We Have No Pants On

A very simple yet thorough explanation of why we need better consumer protection.

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A Lot in Common

John Feffer makes an interesting comparison in a recent article for the Institute for Policy Studies. Here is how he begins the article.

North Korea and Israel have a lot in common.

Neither is a signatory to the Nuclear Non-Proliferation Treaty (NPT), and both employ their nuclear weapons in elaborate games of peek-a-boo with the international community. Israel and North Korea are equally paranoid about outsiders conspiring to destroy their states, and this paranoia isn't without some justification. Partly as a result of these suspicions, both countries engage in reckless and destabilizing foreign policies. In recent years, Israel has launched preemptive strikes and invaded other countries, while North Korea has abducted foreign citizens and blown up South Korean targets (including, possibly, a South Korean ship in late March in the Yellow Sea).

And they're both exceptions in their regions: Israel is a Jewish state in an Arab region; North Korea is an old-style feudal dictatorship in an Asian region marked by relative prosperity and political openness. But the two countries often behave as if they are exceptions to all other rules as well. For instance, they both share an antipathy toward human rights organizations that attempt to hold them to international standards. Witness the recent attacks by Israel (and its hard-right supporters) of Human Rights Watch because of reports critical of Israel's human rights record. North Korea also routinely rejects human rights inquiries as a challenge to its sovereignty. (For a proposal on a better strategy to engage North Korea on human rights issues, check out my latest piece Starting Where North Korea Is.)

What does the Minerals Management Service Do?

They don't tell their staff much about what's going on offshore. They have a problem operating in an ethical manner. They don't like to collect money due us.

Now we find out that they really don't like to make much of an effort to see that offshore drilling is as safe as it can be. Basically, they have ceded oversight of offshore drilling safety to the oil companies. Some of the results of this approach are:

4.84 American die for every 100,000,000 hours worked, while 1.07 Europeans do.

659.73 American get hurt for every 100,000,000 hours worked, while 535.99 Europeans do.

In the U.S. we lose control 3.9% of the time when working with wells, in Europe it's 3.6%.

Maybe part of the safety problem is due to a decline in the number of inspections the Service performs every year. In 2005 it was 1,292, in 2009, 760. Or, maybe its due to a decline in penalties imposed on the oil companies; in 2000 there were 66, in 2009 the number was 20. Or, maybe it's because the Service expects the oil companies to create regulations.

The most bizarre incident reported in the Wall Street Journal article is the suit by an oil company against the Service wherein the company claimed that the Service's investigation of a fatal accident that occurred at a company's rig was incomplete.

Will changes be made in the Service?.

Leadership in the 21st Century

Another example of Congress' inability to solve just about any significant problem is the payment to doctors serving Medicare patients. At the end of this month, the payments made to these doctors will be cut by 21%. This makes absolutely no sense and will eventually result in a growing number of doctors being unwilling to treat Medicare patients.

Congress is unwilling or unable to modify the legislation demanding this cut because it will increase the budget deficit. Cancelling the cuts will cost $276 billion over the next ten years. Gee, if we cut the defense budget by a few percent a year it would amount to a heck of a lot more than $276 billion over ten years. Wouldn't that be the smart thing to do?

Democracy Without A Middle Class

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That's one definition of Iraq by Alisa Roth and Hugh Eakin. Their definition stems from the reality of the Iraqi refugees scattered primarily around the Middle East. Fundamentally, many of these refugees were of the educated middle class. While we thought that overthrowing Sadaam would lead to the return of many expatriate Iraqis, that just did not happen. In fact, the reverse seems to have happened in that 20% of Iraq's pre-war population has left the country. The 5,000,000 that have left is the largest number of displaced persons in the Middle East since 1948. And it looks as though there will be severe long term implications as many of these 5,000,000 are families.

The diaspora continues; in March 866 Christian families were driven out of Mosul by Islamic militants.

It Will Not Go Away

The Judge Rotenberg Center in Canton, Mass., is once more in the news. This time it is the subject of an Urgent Appeal to the United Nations Special Rapporteur on Torture by an organization known as Mental Disability Rights International (MDRI). Similar appeals have been made to authorities in New York, Massachusetts and California; people have been upset with the Center almost since the day it opened its doors. But the Center has beaten all of these appeals back.

The Center treats those who can find no help in conventional settings. It is the last hope for parents whose children are really and sadly out of control through no fault of their own. The Center's approach is a rather unique form of behavior modification: torture. The MDRI is correct. What is done to these kids is torture. Yet, the Center has been able to stay in business for more than forty years despite its periodic resurgence in the news because of what seems like barbaric treatment of its patients. Why is that?

Managing Very Large Organizations

Simon Johnson of The Baseline Scenario has an excellent article on one of his favorite topics - breaking up the big banks. In this article he disses Dodd and Corker for their arguments in favor of the big ones. There are a number of comments as usual. I found the following from Edwin Lee particularly trenchant about managing organizations.

Having been a CEO for 16 years, my first concern about large banks is that they can only be managed too poorly to serve the needs of a healthy market. It’s a matter of scale. Size allows dominance by otherwise feeble management, which is just what is happening.Let me cite some structural issues:
1. A top executive can only make so many executive level decisions in a year. (At least half dealing with internal issues) The larger the institution the more complex the decisions and the more time and accurate information it takes to make good ones. The larger the institution the lower the percentage of well thought out decisions; more and more get made on a handful of myths and personal relationships with loyal lieutenants. (Big government has the same limitations for Executive or Congressional decisions)
2. Leaders of large organizations tend to deal with comparably large consequences… you don’t manage a $100 billion corporation making $50 million decisions. (However, they also tend to spend more time making trivial decsions because these are the only ones with immediate, self gratifying outcomes) Thus, management looks for huge pools to muck around in… like housing pools, government debt (Goldman Sachs in Greece), etc. The little guy isn’t dealt with as an individual, merely part of some large pool. But note, you have less competent people dealing with much larger and more complicated pools… thus the recipe for disaster.
3. Leadership of large public organizations is chosen by others on the basis of loyalty, loyalty, loyalty and reputation, not competence. Robert Rubin and Larry Summers are examples example of this reputation and loyalty principle. Entrepreneurs who lead small organizations and who grow large successful organizations self select and are pruned by market forces. In a sense, leaders of large organizations inherit their jobs by being loyal followers for decades. Hardly the best screen for creative and intelligent leadership.
4. An industry dominated by a few large organizations hasn’t the structural surpluses to develop and screen out the next generation of competent leaders. Metaphorically, it lacks a farm system in which to develop and screen outstanding future talent. This is also the failing of dictatorships, the next generation of leaders tends to be toadies who were loyal within the system.
5. No industry should have insitutions that are too large to fail in the marketplace in a way that allows for orderly distribution of their assets. For financial institutions this size is about 3% of the overall national financial market (due to interlocking activities and the critical role of money and credit to the economy)…. to allow for a healthy apoptosis process (as in FDIC distribution of failed institutions’ resources) as opposed to a necrosis process in which one institution’s failure cascades throughout the system. Given the 3% upper limit, growth through mergers and acquisitions should be prohibited when an institution reaches 1% of the national market.

I have posted more on breaking up the behemoths on my own blog. What is blantantly obvious to someone who has led a business in a highly dynamic marketplace of hi-tech seems to escape Corker, Dodd and most economists.

Negligent Homicide

Image by Getty Images via Daylife

Ross Levine of Brown University has performed an 'autopsy' of the Great Recession and concludes that 'negligent homicide' played an important role in the demise. By negligent homicide Levine is referring to the silence and inactivity of the regulatory agencies in the late 1990s and early 2000s. In Levine's opinion, these agencies - mainly the Fed and SEC - and Congress designed, implemented and maintained "policies that spurred excessive risk taking and the eventual failure of the financial system". He is not saying that greed and overly complex financial products did not play a role in the failure, but they would not have been able to play that role if the regulators had done their jobs. The regulators knew that problems were looming, however they did nothing to prevent them.

The first agency Levine looks at is the SEC and its decision to establish Nationally Recognized Statistical Rating Organizations (NRSRO), which essentially meant anointing Moody's, S&P, Fitch etal as gatekeepers to the securities markets. The SEC used the ratings of the NRSROs to establish the capital requirements for institutions the SEC regulated. Eventually, these ratings became de rigeur for any company that wanted to play in the big leagues. At heart, the NRSROs were given the "right to sell license to issue securities". The money for these licenses was quite good and the rating agencies succumbed to the temptation. If you paid enough money, you got the rating you wanted. Is there any wonder that so much garbage was rated AAA? Did the SEC do anything to get the NRSROs to produce realistic ratings?

The Fed is the next agency Levine looked at. He considers the effect of the Fed's decision in 1996 to allow banks to use credit default swaps to reduce their need for capital, which enabled the banks to invest in higher-risk situations. The Fed did not keep a close watch on the derivative markets, although in 1992 the NYFRB noted their concerns about the markets and did threaten to do something about them. And in 2004 my friend, Tim Geithner, as head of the NYFRB, was concerned about the lack of information on these swaps. Plus the Fed was aware that the subprime mortgage market was getting shakier. Did the Fed do anything to try to get banks to increase their capital?

Levine goes on to talk about the Brooksley Born fiasco where Greenspan, Rubin, Summer and the SEC put the kibosh on Born's attempt to bring some transparency to the derivatives market.

Back to the SEC. In 2004 they made it easier for the five largest investment banks to gamble; the SEC ruled that these banks were exempt from the net capital rule and, thus, were able to take more risks. Then, the SEC allowed the banks to use their own risk assessment models. Levine really slams Christopher Cox, the previous head of the SEC. Cox eliminated the risk management office, and did not inspect any investment banks in the 18 months before Armageddon. Why should Cox have bothered? The banks were only handling $4 trillion in assets.

Fannie Mae and Freddie Mac - and ultimately Congress - are also blasted for their lack of control.

Levine has certainly done a fine job in making his points.

A New Hampshire Sense of Humor?

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I don't think that's what the principal of Winnisquam Regional High School has. She thinks that wishing Obama dead is funny. The principal, Ms Cadarette, joined a Facebook group whose site refers to celebrities who died in 2009; the site prays as follows, "Dear Lord, This Year You Took My Favorite Actor, Patrick Swazie. You Took My Favorite Actress Farah Fawcett. You Took My Favorite Singer, Michael Jackson. I Just Wanted to Let You Know, My Favorite President is Barack Obama. Amen."

When her joining this group became public knowledge. she said, "I find that funny; I don't find that offensive. It's a joke - off-color, possibly - but a joke." However, she did take down her Facebook page.

The district in which the high school resides apparently doesn't like Obama for it prohibited Obama's talk to schools last Septmber from being shown live in its classrooms.

Leaders No More

Yes, we did invent the Internet. No, we are no longer leaders when it comes to capabilities and cost of the Internet we use every day. The OECD has a number of spreadsheets documenting the current status. In terms of speed, 14 countries have faster download capabilities than we do. In terms of price we get a lot less for our money than many of our Western allies; in Canada, in Denmark they get twice our speed and pay less for it.

In the past three years things have not improved for us. The FCC has announced a National Broadband Plan to change things, but it doesn't look very promising, largely because it does nothing to promote greater competition.

Letter to a Son Entering the Restaurant Business

I came across this while cleaning out some files. It summarizes what I think is a sensible approach to building a business.

Dear Steven,

You haven’t pulled it off yet, but you’re close. While you have to focus on completing the deal, you have to seriously think about how you can make this business truly succeed. A certain percentage of the population has the courage to start a business. A much smaller percentage make it succeed. It takes work, guts and smarts.

Here are a few things I’ve learned over the years:

Cash flow is like the air you breathe. If you don’t get it, you die. If it’s poor, you are sick. Cash flow is the most important thing for a small business.

Don’t hire anybody unless you have absolutely no other choice. People need to be paid every week; you may not have the money to pay them and still pay your creditors.

Read the above paragraph a few times as it is very tempting to want to build a mini-empire of employees. Remember the name of the game is cash flow.

Don’t believe anybody who says you can’t miss. You can. You need to get people to come in and to keep coming back.

Sell things people want to buy not what you think they should buy. Customers pay your bills. (Repeat the last sentence every day.)

Time is an asset, but a diminishing one. You have less today than you did yesterday. Use it wisely.

Make the business a part of your life, not your whole life.

You are running a restaurant business not a social club. Be careful of how you treat friends. Be careful of hiring friends. A boss is not a friend in the same way.

Work harder than anybody working for you. Do the lousy jobs. Do every job well and make sure everybody else does. Every job is critical or someone shouldn’t be doing it.

Give employees a fair shake but don’t be afraid to fire anyone.

Be a good neighbor.

Have fun!

Good luck.

Dad